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Overview of the AI Boom Fueling Data Centers in Asia

Asia Pacific, including Japan, has led dealmaking activities in the global data center market this year, with M&A value totaling $840.47 million, more than half of the global amount, London Stock Exchange Group ("LSEG") data showed. In 2023, the region's data center deals hit a record high of $3.45 billion, according to LSEG. That tally is set to be surpassed this year with at least a couple of large transactions in the pipeline.



Asia Pacific is witnessing a surge in data center deals as global private equity investors and asset managers prepare for billions of dollars worth of mergers and acquisitions (M&A) and investments.


A driving factor for the increased demand is higher usage rates of AI technologies. These technologies are known for their intensive data processing needs, and require robust infrastructure capable of handling vast amounts of data with high-speed processing and enhanced security measures. Asia Pacific is not isolated from this trend.


This surge in AI applications has spurred a corresponding demand for advanced data centers equipped with cutting-edge technology to ensure rapid data access, real-time analytics, and uninterrupted service. Further supporting the demand for new data centers in Asia are regulatory environments changing to place a higher burden on data owners to secure and store data collected in a country in that country. Private equity firms are flushed with cash to deploy to build and buy new data centers.


Asia Pacific Leads the Global Data Center Market


Asia Pacific, including Japan, has emerged as a global leader in data center dealmaking activities. According to LSEG data, the region accounted for more than half of the global M&A value in the data center market this year, with a total of $840.47 million. In 2023, the region recorded a record high of $3.45 billion in data center deals, a figure set to be surpassed this year with several large transactions in the pipeline.


AirTrunk's Potential A$15 Billion Deal


One of the most significant transactions in the region is the potential acquisition of AirTrunk, which owns 11 hyperscale data centers in Australia and other parts of the region. Macquarie Group and Canada's Public Sector Pension Investment Board (PSP) are aiming to value the business at up to A$15 billion (i.e., $9.8 billion).


 

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Microsoft's $2.2 Billion Investment in Malaysia


Microsoft Corp announced a $2.2 billion investment over the next four years in Malaysia to expand its cloud and AI services across Asia, reflecting the growing demand for data centers in the region. The company also announced similar investments in Indonesia, Thailand, and other parts of Asia.


Potential Deals in Indonesia and Japan


Indonesia's state-owned Telkom Indonesia is considering a $1 billion sale of a stake in its data center business, while Japan's NEC is reportedly weighing a $500 million data center sale. These potential deals highlight the region's active data center market and the continued interest from global investors.


Goldman Sachs Asset Management's Investment Strategy


Goldman Sachs Asset Management ("GSAM") has deployed more than $1 billion on data center development in Asia over the past three years and plans to invest in additional projects, with a particular focus on Japan and South Korea.


Energy Consumption and Sustainability


A notable trend in data centers is the shift towards renewable energy sources, such as solar and wind, which now power a significant portion of operations in facilities across Singapore and Japan. Innovations in cooling technologies, such as using ambient air or seawater, are being implemented to reduce electricity use, a major cost in data center operations. For instance, in Thailand, a new data center utilizes an advanced cooling system that reduces energy consumption by 40% compared to traditional methods. Additionally, more data centers are aiming for green building certifications like LEED or the BCA Green Mark, reflecting a commitment to sustainability that not only reduces operational costs but also appeals to environmentally conscious investors.


Political and Regulatory Landscape


Countries like Singapore and China have implemented strict data sovereignty laws that require data to be stored locally, significantly driving the construction of new data centers. In India, the government’s push for digital transformation has included incentives for data center investments, such as tax breaks and land allocation, which have spurred domestic and international enterprises to establish large-scale operations. However, these investments are also subject to complex regulatory approvals that can affect the pace of development. For example, Japan’s recent amendments to its data protection laws have led to heightened security measures in data centers, ensuring compliance with international standards but also imposing additional operational burdens. These regulatory landscapes not only shape where and how data centers operate but also influence global strategies for data management and protection in the region.

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